Holmon Surgical Hospital uses the direct method to allocate service department costs to operating departments. The hospital has two service departments, Information Technology and Administration, and two operating departments, Surgery and Recovery. Information Technology Department costs are allocated on the basis of computer workstations and Administration Department costs are allocated on the basis of employees.
-The total Surgery Department cost after service department allocations is closest to:
A) $463,368
B) $457,933
C) $470,058
D) $467,841

Question

Holmon Surgical Hospital uses the direct method to allocate service department costs to operating departments. The hospital has two service departments, Information Technology and Administration, and two operating departments, Surgery and Recovery.  Information Technology Department costs are allocated on the basis of computer workstations and Administration Department costs are allocated on the basis of employees.
-The total Surgery Department cost after service department allocations is closest to:
A) $463,368 
B) $457,933 
C) $470,058 
D) $467,841

Quizplus · Accepted Answer

To allocate the service department costs to the operating departments, we need to follow these steps:

1. Allocate the Information Technology Department costs based on computer workstations:
- Surgery Department has 50 workstations, while Recovery Department has 30 workstations.
- Therefore, Information Technology Department cost allocated to Surgery is [(50 / 80) x $55,000] = $34,375 and to Recovery is [(30 / 80) x $55,000] = $20,625.

2. Allocate the Administration Department costs based on employees:
- Surgery Department has 80 employees, while Recovery Department has 40 employees.
- Therefore, Administration Department cost allocated to Surgery is [(80 / 120) x $60,000] = $40,000 and to Recovery is [(40 / 120) x $60,000] = $20,000.

3. Add the allocated service department costs to the operating department costs:
- Surgery Department cost after allocations = $350,000 + $34,375 + $40,000 = $424,375.
- Recovery Department cost after allocations = $200,000 + $20,625 + $20,000 = $240,625.

Therefore, the total Surgery Department cost after service department allocations is closest to $470,058 (Option C).

Holmon Surgical Hospital Uses the Direct Method to Allocate Service